Bernanke, who announced the changes during a speech Wednesday, said the Fed will now:
- publish economic forecasts quarterly, up from semi-annually. (These reports will include forecasts for economic growth, unemployment and inflation.)
- publish a 3-year horizon analysis, up from a 2-year analysis, and this section will also include "a narrative" that summarizes the views shaping the outlook, as well as the breadth of views among Fed governors.
- publish a price gauge prediction for headline inflation (which includes food and energy costs), as well as a prediction for core inflation.
Bernanke's reforms did not include an inflation target. (Scholars, economic and from related fields, have debated whether the establishment of a Fed inflation target would conflict with the Fed's dual responsibilities, as mandated by the U.S. Congress, of price stability and maximum employment.)
Up until now the Fed has released GDP, unemployment and inflation projections semi-annually in the Fed chairman's semi-annual report to the U.S. Congress, which typically occurs in February and July. Bernanke said the Fed will continue with this practice, but also add projections to the minutes of the Fed meetings that occur at the beginning of Q2 and Q4.
The new strategy "will provide a more-timely insight into the (Federal Open Market Committee's) outlook, will help households and businesses better understand and anticipate how our policy decisions respond to incoming information, and will enhance our accountability," Bernanke said in his speech to the Cato Institute, a Washington-based policy research group.
Fed Analysis: In general, it's a good move by the Fed, consistent with the thesis that "the more information, the more transparency, the better." Fed Chairman Bernanke said the changes will also provide a "provisional" plan, or projection, for interest rates -- something that would provide economists/analysts with another invaluable data point when developing economic models based on interest rate scenarios. Further, the added information on the range of views on the Federal Reserve's Open Market Committee also should prove to be very useful, as it will help analysts gauge the strength of policy decisions.
Short-term, however, there may be a few growing pains with the new communication strategy, as analysts and policy makers adjust to the flood of new information from the Fed.
Before the bell: Stocks ready to climb on hopes of continued low rates
Why do we have a weak dollar?
Holiday hiring slow for retailers
Reader Comments (Page 1 of 1)
11-14-2007 @ 3:26PM
Joe Gardner said...
This is a good step. However, I would like the Fed (and gov't in general) to follow some other beneficial practices such as providing such critical information (interest rate, inflation figures, trade deficit, unemployment, etc.) after the market closes, preferably Friday. There are reasons why companies typically don't disclose such material information during the trading day and the gov't should be held to at least that standard.
11-14-2007 @ 3:49PM
Ron DiDonna said...
It appears pretty clear to me that the Fed will cut another 25 basis points at their Dec meeting. If you replay Bernake's comments from his testimony last week it was readily apparent that he is more concerned with the slowing economy slipping into recession than he is with inflation.
I am factoring in this rate cut in all of my trading decisions. NLY on its recent pullback will be a major beneficiary as the compayn is essentially an interest rate play.
Ron
11-14-2007 @ 9:37PM
Carson said...
Bernanke’s speech this morning would have been pretty funny if it wasn’t just so laughable.
Imagine someone from the Federal Reserve making a speech about how open they are to cover for the underhandedness.
They remind me of the sort of people you come across in business that figure all of the money coming in is their half of the business and any thing that is a cost that needs to be covered is your half.
They are pretty much like our personal credit cards are to us except they are for the government and the banks. One difference is that we get an accounting at the end of the month. I heard Congress tried to get an accounting and they couldn’t.
It looks like we’re headed for hard times and the government is going to do everything wrong it did in the Depression in the thirties that made it drag out longer then necessary, plus they won’t stop until they top it off with a cherry.